Cabinet Wants to Take more Risks with Pensions

THE HAGUE, 05/07/13 - The law will be amended to state that pension funds must allow payouts to rise every year by at least inflation, or actually reduce the pension. They are no longer allowed to raise the premiums, according to documents obtained by RTL Z.

Social Affairs State Secretary Klijnsma wants pension funds to take more risks with their investments. “A higher expected yield can only be achieved by accepting more risk,” she wrote in the as yet confidential documents. For the participants it must be clear from beforehand “what they can expect if times are favourable or unfavourable on the financial markets.”

In the new system, the pension fund is not allowed “to maintain an indexation standard that is lower than the price indexation.” This means that the pensions have to grow annually with inflation, so that pensioners are guaranteed to maintain their purchasing power.

But in bad times, the funds must immediately lower their pension agreements. They are then not allowed to raise the pension premiums any more, invest differently or no longer use indexation for years. The funds will however be allowed to spread the pension cut out over 10 years.

The new legislation has to be ready by the end of this year, for introduction on 1 January 2015. Because the pension funds can opt for more risks, there is a higher chance of high yields, from which the participants can benefit. At the same time, a higher preparedness to take risks also leads to higher chances of setbacks.

The pension funds can also continue to maintain the present pension system. But they must then invest so safely (risk-free) that raising the pensions with inflation will become virtually impossible.